Transcript: Community Broadband Bits Episode 269

This is the transcript for episode 269 of the Community Broadband Bits Podcast. Pete Hoffswell, the Broadband Services Manager for Holland, Michigan, joins the show to discuss the city's downtown pilot program. Listen to this episode here.

Pete Hoffswell: The demand is here and it's now and we have people banging on our doors saying "Come on, let's do this."

Lisa Gonzalez: This is episode 269 Community Broadband Bits podcast from the Institute for Local Self Reliance. I'm Lisa Gonzalez. This week Christopher talks with Pete Hoffswell from Holland, Michigan. The community has had fiber in place for a while now, but are in the process of building out a pilot program to offer connectivity to downtown areas. In this interview Pete explains what Holland has achieved, what challenges they face, and what they have in mind for better connectivity. Now here's Christopher and Pete Hoffswell from Holland, Michigan.

Christopher Mitchell: Welcome to another edition of the Community Broadband Bits podcast! I'm Chris Mitchell with the Institute for Local Self Reliance up in Minneapolis, Minnesota and today I'm speaking with Pete Hoffswell, the Broadband Services Manager for the Holland board of Public Works in Michigan. Welcome to the show.

Pete Hoffswell: Hi, Chris, how are you doing today?

Christopher Mitchell: I'm doing good. It's good to talk to you here. Let's just dig in a little bit with what is Holland like?

Pete Hoffswell: You know, Holland, Michigan is on the shore of Lake Michigan. We're about 100 miles from Chicago by boat so it's a little longer by the highway but we're not that far from Chicago. We're right outside of Grand Rapids, Michigan. Holland has a population of 33,000 and is part of a larger regional area of 100,000 people. It was settled in 1847 by Dutch immigrants, as you could well guess. We host a Tulip Time festival here with over 600,000 visitors every year. We have a lot of tourist influx into our town, it's a big part of our DNA here. But another big part of Holland is our business. We are a support industry for automotive, of course, a lot of light industry in our town and a lot of knowledge workers working downtown in small startups. Everything from industrial design, embedded systems, up to full cloud based service companies.

Christopher Mitchell: In your part of the Board of Public Works, which is one of the earlier ones, I mean I think people often think that these electric utilities or utilities that went on to also do electricity started in the early 1900's but you beat the curve quite a bit.

Pete Hoffswell: Yeah. We had a problem with all the horses running around on the street. It was a little dark and it was being a problem so we decided to move from our gas lights to electric. In 1883 the Board of Public Works was founded, really for water first, but in 1888 we started with power. We got lights on the streets and immediately went everywhere else like the rest of the country. What's sort of interesting about the Board of Public Works though, and why we're talking today is in 1992 the BPW decided to enhance their utility services by adding a fiber optic loop to our system. It allowed us to really take care of electric switching and pumps and everything throughout the system. When we did that, somebody had the brilliant idea of building that with extra capacity, to serve the community for communications. We built that Chris, as an open access model and to this day have had great success providing fiber, not only for the utilities internal operations, but for our community as a whole.

Christopher Mitchell: Well, before we get to far down that, and that's where we're going to spend most of our time talking about. I think that a number of people might think of Holland as one of many Michigan towns that are great to visit, but Holland is, I think, somewhat unique and I'm curious if you could just tell us a little bit about some of that.

Pete Hoffswell: Our heritage, the Dutch, is really about working, about starting businesses up. I just read in the paper one of the great-grandfathers of a gentleman here, in town, was a lamplighter. He was lighting lamps, he went on to start a recreational equipment bike store downtown and that gentleman, to this day, is still running that business there. It's entrepreneurship type community. We have a ton of companies down on our min street, which is called A Street, that are all startups. Whether they're building embedded systems to support refrigerators and ovens that are built in Whirlpool, just south of us, to cloud based services, it's really amazing stories downtown.

Christopher Mitchell: So getting on to the open access fiber. You mostly serving businesses, I think. You have over 200 customers. Why don't we talk a little bit about this long history you've had with that model. Before, to tease the future, we're going to talk about the new model that you're exploring.

Pete Hoffswell: 20 Years ago we built this fiber to support our utility and the community and we built that, now open access model, and we did this providing services in two different ways. The traditional dark fiber lease. We give you the strands of fiber and that's -- You have at it.

Christopher Mitchell: We have a history in my office of trying to explain dark fiber and I actually really like that explanation because I think it really captures that you have to have expertise to take advantage of it. You also have a model, which might be more appropriate, for less tech savvy businesses.

Pete Hoffswell: Yeah, that's our active ethernet service. The active ethernet service is a list service where we actually bring a network device into the business. You plug into an ethernet port and we provide, in transit across our network, connection to wherever else you want to go. If you're a business and have two locations in our area we can provide transit service to connect those up just like they were on a LAN. We support this with a 10 gigabit MPLS backbone for the techies out there. Pretty soon we're going to upgrade that to 40 meg as the bandwidth is getting sucked up.

Christopher Mitchell: Presumably 40 gig.

Pete Hoffswell: Oh, I said 40 meg, oy! You know I have to speak to our community, who speaks in megs, and I say "Well it's a 1,000 megs."

Christopher Mitchell: Right.

Pete Hoffswell: They're like "What's a gig?" "It's a 1,000 megs." "Oh, okay, yeah. I understand that now."

Christopher Mitchell: Yeah, I like to tell people you don't really have to get focused on what it is, you just want to know, understand, more is better. It means less waiting on your computer.

Pete Hoffswell: Yeah, I use the highway analogy all the time. It's a 1,000 mile an hour highway. That's what we're talking about.

Christopher Mitchell: Right.

Pete Hoffswell: Yeah.

Christopher Mitchell: And so when you use ethernet service, that's something that, if I was an LISP that was trying to serve customers in the area, I could lease that. I would pay you for that service and then I would be branding it as my own and delivering it and offering customer support on it. Is that how it works?

Pete Hoffswell: Yeah. That's exactly right. So our open access model really splits this facilities management, that's the fiber and the network electronics, all of that separates out from the services that ride on it. So our open access model we have six partner ISP's today that take full advantage of that. Customers call our partner ISP's and then the partner ISP calls us and says "Can you hook us up?" And we've done that, we have over 200 customers of our ISP's that utilize that.

Christopher Mitchell: And that actually reaches outside of the city, even, in some cases, right?

Pete Hoffswell: Absolutely. Our electric service area reaches outside of the city proper, serving over 33,000 customers with electric and water or waste water, and our fiber optic system extends even further beyond that, covering the greater part of two different counties.

Christopher Mitchell: And have you been expanding this? I usually use the word opportunistically. Is this something that, over those twenty years, you've expanded to new areas or is it largely that same foot print that was originally built out with extra capacity?

Pete Hoffswell: Yeah, that's a great question Chris and I have an interesting story with this. Historically, we really built this with the capital recovery assurance. If a new customer wanted to get on board and it cost $2,000 to build the fiber into their building, then we said "Sure, you can come on board for $2,000." Well growth was very slow that way. It's a big up front investment for any company. Four years ago we decided to change our cost recovery model, which was that up front pay and we'll build it, to a four year return on investment model where we take the revenues that we expect to earn over four years on that new circuit and roll that into the build cost. So this allows us to grow fiber much quicker by just taking and reinvesting in this system.

Christopher Mitchell: Man, I'm curious. If I'm an ISP that is using your services, am I paying you a percentage of revenue that I'm making or is it a flat fee based on different criteria?

Pete Hoffswell: It's a flat fee and as a municipal utility we operate in a classic rate book format. So we have our dark fiber leases, so many cents per mile, and our active ethernet service is so many dollars per meg and you can go right to our website and see all that. The ISP pays those flat rates to us and then they mark that up with whatever the cost in revenue that they want to make on top of that.

Christopher Mitchell: Right and so we've been talking about this open access model, that uses dark fiber and active ethernet, mostly to connect larger businesses but there's something new in the air as of this summer. Well, it's been officially decided this summer, but it's been talked about for quite a while. We're talking about yet another approach the gigabit passive optical network or GPON, which is for people who aren't familiar. It's the technology that, for instance, Chattanooga uses, Verizon uses -- A lot of the biggest ISP's have used to connect residents. So what are you doing with GPON in the near future?

Pete Hoffswell: One of the issues we've had in our community -- Our services work great for medium and large sized businesses. We haven't been able to really provide service to the rest of our community and the city council, here in Holland, over the past couple of years is -- Prioritized that highly. It was number one a couple of years ago, was broadband development in our community, and they tasked the BPW to take a look at that and come up with solutions. What we've done is a year ago we started a pilot using GPON downtown. Connected up some of the retail establishments down there. We connected up restaurants and coffee shops to provide gigabit service to their customers. We also connected up a incubator space where we have small companies working together in a collaborative environment and they needed a lot of bandwidth. And a great company downtown, called Collective Idea, that does online application development for companies across the country and around the world. They rely heavily on Internet connectivity as part of their business and our pilot served them over the past year very successfully. So we're moving now to an expanded pilot program and we're going to utilize this GPON infrastructure, we're going to build it out to a footprint, sort of a fiber zone, if you will, downtown that covers 158 buildings with about 450 customers. This is a typical main street, so you have the first floor is retail, restaurants, coffee shops, and what not. Upstairs is small businesses and residential, a mix.

Christopher Mitchell: I just wanted to suggest if people want to get a sense of how the public is responding to both the existing pilot and the expanded pilot, Hollandfiber.org is a really good site. Other communities should definitely be taking a look at this in terms of how activists and people in the community can document and encourage these kinds of investments. But I just -- I love the quotes from the people involved and you get a real sense that there's a lot of enthusiasm.

Pete Hoffswell: I am glad you brought that up. One of our key strategies is -- We are building fiber for our community. Does our community want it or not? We're not going to build fiber to the community if they say "You know what? We're good." You need to have that relationship with your community. You need to be open. You need to have those stakeholders out there that are saying "You know what? This is really a good thing for our community. We need you to do it." Hollandfiber.org is that community side. It's really a key component of developing fiber.

Christopher Mitchell: And a good model for others to check out. But let's go back to this, the pilot and the expanded pilot. With a new technology there's been some lessons learned and one of the decisions that you made this summer was that you're going to become an ISP as the city rather than only doing open access.

Pete Hoffswell: Yeah. We will be a municipal ISP. It's an exciting time for us. As we've been talking about, we have an open access model, we have a lot of partner ISP's, and we were really excited about doing open access GPON infrastructure as well and put an RFI out for that. Our RFI respondents were really the companies doing sort of a classic model, which is the facilities plus service based stuff, and since we do all the facilities, it didn't really match up.

Christopher Mitchell: And so this is something that might be surprising to people but this happens fairly frequently, I think, where the city says "We would like to do A," and you get a bunch of responses from companies that say "We're going to do B." And then the city has to figure out what it wants to do because you can't force companies to participate in your plan A, you have to adjust, right?

Pete Hoffswell: You do, and Chris, you know, as well as anybody, that this is a new market. It's new ways of doing business. The business models are being figured out right now. I mean, we're really on the cutting edge of figuring out new ways to provide broadband services to the community. And I think, you know, this idea of public/private partnerships and where it's going to ultimately end up, we're not sure. I mean we're trying to figure it out. That's what our process has been. We're becoming an ISP, yeah, but we're designing our GPON infrastructure to be open access still. So like the Ammon model, we love Ammon, it's a great, great, great model. We are going to do that in our town too. We're going to be the ISP first and we really, really hope to see partner ISP's and other service providers too, whether they're security or phone, or whatever over the top services they want to provide. It's all going to be open and available. Our rate books are written this way. So for us it's like law.

Christopher Mitchell: So where are you at now, as we're talking at the beginning of September?

Pete Hoffswell: Yeah, so we've gotten through the uphill battle of planning and policy and regulations and laws. Really I think of "The Little Engine That Could," you know, I think I can, I think I can. We've been doing that here for the past year in earnest. Working at getting everything lined up, ready to go. That culminates at the peak of the hill with our city ordinance that authorizes BPW to become an ISP. We're ready to go. So now we're on the downhill run. We're working on building fiber downtown. So we have fiber everywhere but we don't have a GPON infrastructure, that's fiber to every single building downtown. That's what we're going to build here over the next couple months and we should see our first customers coming online with our new service in November.

Christopher Mitchell: So for people who are located outside of downtown who are, undoubtedly, enthusiastic about the expansion but curious when they might also get their crack at it -- What do you tell them?

Pete Hoffswell: Personally, I'm a big advocate of ubiquitous networks. The fiber should be available to everybody, just like the roads are available to everybody. Our downtown pilot is really an exploration on what is it like to provide this new, what we call shared gigabit service, how do the numbers work out, what is the take rate, and we want to get our feet wet with this project. That's why we call it an expanded pilot. But for every one person that signs up downtown we have ten people that are sending in notes of requesting connectivity. So there's definitely interest outside of our initial area and we're trying to figure out how we can do that. The downtown project, Chris, is working on that four year ROI model. We're building that on the understanding that we will get the revenue back over the next few years to pay for that infrastructure. We're very confident. There's a high density of people downtown. That doesn't translate well to the rest of our community, which is going to be a small city density of customers and then out in our outlying townships you're getting into rural access. So we sort of have the whole gambit. From a high density all to the way to the rural and we're trying to figure out how do we pay for that and I think everybody in the country is trying to figure out how to pay for that. I think half your podcasts are probably focused on this particular issue.

Christopher Mitchell: Right. Now I know I've seen you at many events and things like that, I know you've been paying attention to what other folks are doing so -- So what are some of the things that you've seen other people doing that you're considering doing?

Pete Hoffswell: We're researching this right now, trying to figure it out. What we'll do, ultimately, I'm really not sure. The demand is here, and it's now, and we have people banging on our doors saying "Come on! Let's do this!" The great models that we see out there today is that of demand aggregation, which is your typical model that you see throughout the country. That's where you identify a zone, an area in your community, and you say "Okay, everybody in that area, you guys sign up and if you commit to purchasing the service then we will go ahead and build it out to you." So once the take rate in that zone gets to a certain level, you have an assurance that you'll be able to recover your investment on revenues that you'll get from that area and you go ahead and build it. That's what they do over in Europe, right? They've been doing this a long time, demand aggregation. We've seen various levels of success in the country with demand aggregation, it can be tricky.

Christopher Mitchell: One of the important pieces is something that you said earlier, which is that you have a commitment to get to everyone, eventually, but you may be prioritizing based on the business model. Which, I think, is definitely a reasonable way to go and one of the things that I strongly believe is local authority. If people -- If the voters of Holland would like to use a different model, they could certainly tell their elected officials to do that. You know, I think a lot of this is the DPW, the Department of Public Works, figuring out how to act within the current political environment but people could always change that if they would like to get fiber more rapidly.

Pete Hoffswell: Yeah, demand aggregation, it's not a ubiquitous build. Economic divides match up with digital divides, as you well know. This may not be a good way to build fiber into communities that maybe really need it.

Christopher Mitchell: I just wanted to hammer home -- I'm never as clear as I want to be. But when an organization like yours is doing this, that is committed to serving everyone, that has a history of serving everyone, I have more faith that, even if over the first few years the demand aggregation goes first to the places that are more affluent, that you will, ultimately, connect everyone. The utility will have a pressure on it, to connect everyone and I just think it's worth remembering that because private companies that use demand aggregation may not have that priority to come back around and make sure that, ultimately, everyone gets it. Because this is a multi --. It's a 100 year technology, it's a very long horizon and although it's frustrating that the most affluent may get it first, it is better that the low income folks do get it over three to five years than over 50 or 60 years.

Pete Hoffswell: It's true, man. You can look at it as a means to an end, Right?

Christopher Mitchell: Right.

Pete Hoffswell: Absolutely.

Christopher Mitchell: So --

Pete Hoffswell: And I think any of these models can be used in tandem, in conjunction with each other, to reach an ultimate goal.

Christopher Mitchell: Right. So let's talk about another one. What else are you considering?

Pete Hoffswell: You know, another model is that of city investment. That would be capital costs are covered by either like a bond issue or a special assessment. These have been met with various levels of success across the country as well. We're very familiar at the Holland Board of Public Works with special assessment because that is how you build utilities. That's how you build water and sewer service. If a new neighborhood comes up, they'll build a sewer main down the middle of the road and that is paid for though a special assessment, it shows up on your tax bill. It's not a tax, it's a special assessment to help recover the cost of that infrastructure build.

Christopher Mitchell: And I think it's worth noting that if the property is sold then the new owner will take over that assessment. This is one of the nice things about it, and something that's different about it than a tax, because a home owner is taking less risk because the assessment would stay with the property.

Pete Hoffswell: Absolutely. Another place that the board has experience with special assessment is our downtown area. We, as a power provider, have a lot of waste heat on our power plant. We've taken the waste heat and we've pumped it in pipes underneath all of our sidewalks and lot of our roads in our downtown area to produce a snow melt system. The snow melt system has take our downtown from shutting down in the winter almost, because we get a ton of snow here, we're in a snow band lake effect here on Lake Michigan, to bringing a economic revitalization in the off season for the downtown. That's paid for by a special assessment to the businesses that are along that snow melt system. So it's an interesting tool on how to get things done and it's been very successful and an economic development tool. This may be a good way to do fiber development as well so we're looking at it.

Christopher Mitchell: I just wanted to note, that was one of the things that I was thinking of, as terms of Holland being special. I think thinking just a little bit differently and one of the side effects of using that waste heat in that way is that, of course, you're not dumping extra salt into the lake or the watershed, which is something that, I think, people are going to be increasingly concerned about in the future. It's a little bit of an aside on technology based podcast.

Pete Hoffswell: It's an innovative thought, right? Innovation is a key to what we're trying to do and thinking about things outside of the box, like our snow melt system, is a great example of that. I think it really is a good shot in the arm for broadband development to say "You know what? We're not exactly sure how broadband might help our community but we think it will help our community. Let's talk about it, let's figure it out." One of the things that we didn't even think about with the snow melt system is it is a fitness tool. We have people coming all year round to come walk on our beautiful streets because there's no snow on them and there's nowhere else that they can get out and do their walking.

Christopher Mitchell: So Pete, one of the things that we often see of course, is that the big companies, your Comcast, your AT&T, Verizon, Charter, whatever -- They aren't really interested in investing in a community, like Holland, to bring the next generation of technology up unless there's real competition. You know, they'll do it on their time schedule. But when a city, like yours, starts stepping up then they'll often increase their investment, they'll lower their prices and things like that. I'm curious how you're going to react to that dynamic when it comes to pass.

Pete Hoffswell: Holland Board of Public Works works for the city and the city has a mission for the betterment of our community, right? We want to increase the attractiveness and livability of our community and the BPW is no different. We're very excited about the incumbent ISP's being in town. They have made our community better because they provide a service, right? They've done a great job of that over the past 20 plus years and right next to us providing services as well. So we've had a pretty good relationship with them. Now, moving into becoming an ISP, we're really getting into their space, right? We're going to go fully competitive. Customers downtown are going to be able to order from the incumbent ISP's or from us and that's great. The incumbent ISP's have responded to our work downtown by enhancing their infrastructure. We see a lot of new fiber builds going down downtown and they're working to get their network in our city up to the next level to remain competitive. This is great. It's awesome. The ultimate goal of providing better broadband for our community is being met in more ways than just us doing it. The other thing that's great on this Chris, is we're an open access model, right? We want to build the infrastructure and let all the ISP's in the are and other service providers utilize that and the big incumbent ISP's are facilities based so they don't necessarily have that in their business models. They want to own the infrastructure and then sell services on top of that but we're starting to see some chinks in the armor. They're willing to sit down at the table and talk to us. We even have some of the incumbent carriers in our area using our fiber because we happen to have it where they don't have it and it works great. We think in the future we're going to see more and more of this partnership infrastructure opportunities. Whether co-builds, whether it's dark fiber leases, or even active ethernet services to incumbent ISP's just grow. I'm very optimistic Chris, that we're moving to a new era of telecommunications that we're going to see things be more open.

Christopher Mitchell: Yeah, I think there's a lot of people who might be thinking "Yeah, if I lived in Holland I'd be pretty optimistic too."

Pete Hoffswell: We have a windmill here that was brought over on the ship in 1964 from the Netherlands and we have fiber even to that thing. You can go there, it's an operating windmill, and you can go up there and the folks in their Dutch costumes and wooden shoes are sitting behind the cash register and they'll sell you a bag of flour that was ground by wind from this windmill. It's fantastic and the fiber is there to help them do it.

Christopher Mitchell: Well, just as long as they all remember to root for the U.S.A. in the World Cup and not the Dutch, it sounds pretty good.

Pete Hoffswell: Hey, hey, we're all winners here.

Christopher Mitchell: Well thank you so much Pete for coming on, telling us more about what's going on in Holland and also for inspiring people to think a little bit about what they could do differently in their communities.

Pete Hoffswell: It's all about passion. If you can see a goal of better broadband for your community, then do whatever you can to get there. Be excited about it, know that there is a path to get there and just up to you as broadband developer to find it.

Lisa Gonzalez: That was Christopher with Pete Hoffswell from Holland, Michigan discussing the community's municipal fiber project. We have transcripts for this, and other Community Broadband Bits, available at MuniNetworks.org/broadbandbits. Email us at podcast@muninetworks.org with your ideas for the show. Follow Chris on Twitter, his handle is @CommunityNets. Follow MuniNetworks.org stories on Twitter, the handle is @MuniNetworks. Subscribe to this podcast, and the other ILSR podcast, Building Local Power and the Local Energy Rules Podcast. You can access them on Apple Podcasts, Stitcher, or wherever else you get your podcasts. Thanks to Arne Husby for the song "Warm Duck Shuffle" licensed though Creative Commons and thanks for listening to episode 269 of the Community Broadband Bits podcast.